Taking responsibility for your craft
by John Curnow 22 May 2019 13:09 PDT
Some of the joys and perils of going boating © John Curnow
Let’s distil it all down. If you go to the pure essence, you’ll find that unless there is marked change in attitude, and if there are more natural disasters in quick succession, then no one will be able to get marine cover. Yes. The problem is that serious. So, obviously you cannot do anything about the natural disasters, but you can do a lot about taking responsibility for your craft if it is in named peril areas, by performing proper preparation.
The insurance market has changed. We knew this was going to come as a result of all of the claims, most specifically out of the Caribbean (Irma and Maria), and for that matter, Cyclone Debbie as well. Typically, Pantaenius came at it from the front foot, with a redevelopment of their product. It meant that their customers could have the kind of cover they have become accustomed to, and require.
Managing Director of Pantaenius Sail and Motor Yacht Insurance in Australia commented, “We have been expecting a crunch for quite some time, and we have been doing our best to educate the market and our client base. We have regular newsletters for all of our existing customers, and even prospects. The message from us has always been that a policy is where the insured and the company jointly take on the responsibility to secure the asset, and look after the risk.”
“It is incumbent on the owners of boats, particularly in storm affected areas, to ensure that they have done their due diligence, and everything they can so to best protect their asset. Only those people that go to these lengths can honestly expect to be reimbursed to the full extent of the policy.”
“There are many examples from ourselves, and also other insurance companies, where owners received a lower sum because they did not do their part; who did not take precautions, who used the excuse that they were living away form the vessels locale, that they did not know anyone close to the boat at the time of the storm. They claim they were unable to pack their boat up, like putting their sails away, and properly storing their dinghies.”
“You know, in all these cases, the damage that was caused through the neglect of these owners has resulted in not just increased damage to their vessel, and their assets, but significantly increased the damage to other peoples craft and assets, and these are innocent parties. In many a case, they took part of the marina with them, collided with other vessels on the way, and it all adds up to a monstrous bill.”
“It is pure negligence on the part of the owner who allowed this occur, and who made no effort to remove any loose parts, sails, canopies and covers. This type of owner is now going to pay the price, but unfortunately, they are not the only one. Unfortunately with insurance everyone bares the brunt of this, because all insurance stems from just one pool, after all.”
MacPhail added, “Through the storms we mentioned earlier, along with other events, we now have a situation where many of the world’s underwriters (those who actually carry the financial risk attached to a policy) are running as far as they can from marine risk. They hesitantly move to approve marine risk.”
“One of the largest in the market previously, Lloyd’s, has all but removed itself! A broker’s ability to go to them and place a risk has 95% evaporated. Many companies that have still got cover holder agreements and relationships with Lloyd’s are very unlikely to have them renewed at the end of this policy period.”
Yet it is not just storms that are to blame. As mentioned, a very significant contributing factor comes back to the attitude of the insured as to what their responsibilities are in the event of an incoming peril. “We’ve been saying it for years, and now a lot of competitors are also saying the same thing, as too is New Zealand’s biggest marine broker all over social media. The world has changed. The market in terms of the number of underwriters available to take on marine risk is something like 35 or 40% smaller today than it was even as close as 18 months ago.”
Naturally, this is affecting everyone’s ability to get cover. “There are a lot of individuals with good boats, who are good risks, and they’re seeing their premiums go up by 10, 15 even 20%. Yes, they are complaining, saying it is not their fault, and they have not made a claim. Technically that is true, but unfortunately we operate is one big pool, and the supply into that has recently got a heap smaller.”
No matter whether you are here in Australia, or in Europe or the Americas, in a way, we are all joined at the hip. You could ask how the Caribbean storms or the super yacht that burned in the European yard causing something like Euro560m in damage affects someone on the Whitsundays, but the point is, we are all in this together. This is not just affecting marine policies, either. It can be equine, caravan, house, and events like the bushfires in California - the reality is that the end underwriter is going to be one of the world’s biggest insurers; namely Lloyds, Alliance, Chubb, Berkshire Hathaway, ING. They’ll be one of the 10-15 in the group that makes up the significant bulk of the pool we were just talking about.
So in 24-month period where we have seen more catastrophes than in any other period before it, you look at the available insurers to take on the risk, and they have shrunk. Those that are left are much tighter, and their attitude is much stricter. Compliance is being enforced, and the expectation on the insured to perform their part is very much stronger than it has ever been.
“We have had no choice in our policy documents for 2019 to re-stress that it is your responsibility to make your vessel ready, and also to maintain it in a seaworthy manner in the first place. What were saying is that things like clears on the flying bridge will not be covered, and neither should they be, for they will blow out in a storm, and that unnecessary loss only exacerbates the whole problem in what is already a tough market!”
Look at this way; controlling the claims will go a long way to ensuring the underwriters even stay in the market to offer you any cover at all!
The consequential damage of an uninsured vessel collecting an insured one is unconscionable. You have your boat in a cyclone rated marina, and it all got too hard to take your headsail off the furler for instance. You have sustained a lot of damage in a named storm, and the damage you have caused to the boat next-door and maybe six others nearby, because of your negligence, will not be tolerated.
“So it is incumbent on everyone to do their part, and if it does not happen, it is feasible that the world’s insurers will walk away totally form insuring marine assets, particularly for boats kept in anywhere where you could possibly get a named storm. There will be no cover at all. What are owners going to do then?”
“These people who sit at their desk in one of the Southern capitals, and say they could not get to the boat, did not want to pay anyone to do the work, and anyway that’s what insurance is for are on notice. Take that attitude, but do get ready, because your insurer will not respond. If enough people continue in this way, then no one may be able to get cover very soon!”
“Remember, we are very fortunate to be offering cover in the tropics here in Australia, for there is none to be had in the Caribbean for instance. The Australian Government is committed to warning people through the BOM, and also its own SMS and email advice. We send advice to our clients too, but just look at the recent floods in Townsville, for instance. The warnings were significant. Get out, remove assets, and yet a big proportion did nothing.”
“The day that you can rely on this kind of behaviour is long gone. If you do not heed warnings and mitigate the risks by doing what you can, then you run the risk that your insurer is going to have a legitimate reason to deny your claim. Furthermore, I think there’s a false perception in the marketplace that if you don’t do what you should, that the ombudsman is there to protect you, and force the insurance company to tow the line. I think you want to be very careful with this attitude, because the ombudsman is also there to ensure it upholds the clauses and policy documents of the company.”
We saw this not to long ago when the full panel of Supreme Court was exceptionally clear in relation to the exact wording and intention of marine policy documents.
“The ombudsman is also aware that market has changed, and they are concerned that there will be people in Australia who will not be able to get insurance. It is already close to not being able to get insurance for a marine asset based in Darwin, for example. The insurers do not want to touch it. Remember, insurance is a business, and to be healthy, it has to stay alive, which means making a profit.”
“After all, if you have superannuation, a good deal of it may well be invested with very companies who are carrying the risk. So you have to expect that the underwriter is going to be trying to look after their investment. You cannot throw stones at the very same entities, just because you expect them to pay a claim that is totally unjustified because you made no effort to mitigate the outcome. Saying they make a profit, so it’s OK is inconsistent with the fact that it is profit that is fuelling the growth of their superfund at 8, 10 or 12%, which they absolutely demand.”
It is very much a symbiotic circle. As MacPhail says, “You cannot have your cake and eat it too. There remains a lot of naivety in this market. This needs to be eradicated swiftly, for the real risk of not being able to get insurance is here today, and we are not the only ones saying this.”
Insurance companies have risk all over the place - marine, land, indemnity, aviation, or motor. Natural disasters can affect these universally, so the companies need to have enough of their book remain solid, so that it does not sustain significant losses at the same time. So you get a bushfire, marine disasters, and fire in a shipyard all in the one period, and it is a heavy belting. Yet remember, in a hurricane or cyclone, the payout on land will be something like two and a half to three times what the marine risk is.
“So a company will look at their best risk, and also their worst, and if they are losing money, the first one to go is the one at the bottom of the profit table. At the moment, the worst risk in pretty much everyone’s book worldwide is the marine risk, and this is why the pool has dried up.”
“They do not have to insure you just because you own a yacht. It is a privilege, not a right! They are doing you a favour for a fraction of the replacement cost. To complain about a 10 or 15% premium hike when you look at the dollar value paid out, well you could be thinking you’re lucky it is not more, and it will be spread across everyone! So if you only got that small amount, then you should be considering yourself one of the lucky ones. It is a fantastic result for you!
Some are seeing a 50% increase or even worse yet, totally excluded. “We have some competitors in the bluwewater market whose underwriters have dictated to them that they will not accept a whole range of risk. One such competitor cannot cover any tropical storm damage all over the world, including Australia! We can at least still do that, thankfully, as we have been able to negotiate that for Australian Waters. Yes it is conditional, but it is conditional on the owners doing their part to mitigate the risk. You may loose your excess or two times it, but you have cover. So we want everyone to read their policies and ask questions. This is what we have been saying all along.”
“If you leave your boat on a swing mooring in a tropical zone and don t move it ahead of a storm up a creek or to another harbour, then really you have not shown any intention to mitigate the risk, then you will loose your asset. And it is not fair to think the insurance company will pay, nor is it fair that you think everyone should bare the brunt of it for you.”
Few vessels will survive on a swing mooring in a tropical storm. So why would an insurance company accept that risk. It is an unacceptable risk. So you pay $3000pa for a $300k asset, but if you do nothing, then that is negligent, and the cost is the loss. “You are part of the reason that there are now insurers saying we do not want to take your risk on at all. You are part of the reason the premiums have gone up. You contributed directly to the 10-15% increases across the board”, said MacPhail.
“If you look at the numbers, the great bulk of our customers do prepare, and do mitigate risk, and it is these people we feel for. It is the minority that are now seriously affecting the majority, and there is still enough of them to affect the claims ratio of every insurer. This is one part of the reason for the premium increases you are now seeing.”
“That minority need to take their negligence on board, and appreciate what they have done to everybody. You cannot leave it on a swing mooring. You can’t leave the sails on furlers, the bimini up, the dinghy on davits and so forth. This is not acceptable. Interestingly, we actually have people tell us they thought the davits were the safest place to leave the dinghy, so please see here for more information.”
In 125 knots an aluminium dinghy is going to rip itself off. It will be in a sugar cane farm somewhere, may have wiped out a lot of stuff on the way, and God forbid if it hurt or killed someone.
“In my experience, if you have put a few hundred thousand into a yacht, then you’re sharp enough to know what is, and is not appropriate. So you cannot then say you have not been advised. It is not just Pantaenius who is talking about due diligence. This is now a non-existent argument”, MacPhail closed with.
Clearly it just got harder and more expensive to insure your marine asset You need to work harder to ensure you are going to be able to get cover next year and at the years following on from that. You do need to minimise the damage to your vessel, and then also those around you. Ultimately you’re protecting yourself, and it does not matter whom you are insured with. We all end up in the one ool - yes, there is no ‘p’ in the pool, so please keep it that way!